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Prayag Upnivesh Evam Awas Nirman Sahkari Samiti Ltd. Vs. Inspecting Assistant Commissioner. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberI. T. ACQUISITION NOS. 4 TO 16 (ALL.) OF 1983
Reported in[1986]17ITD536(NULL)
AppellantPrayag Upnivesh Evam Awas Nirman Sahkari Samiti Ltd.
Respondentinspecting Assistant Commissioner.
Excerpt:
head note: income tax acquisition of immovable property--fair market value--property in possession of tenants--sale being subject to permission under urban land (ceiling and regulation) act. ratio : order passed under section 269f(6) was not justified in the circumstances of the case. held : the market for the sale of the property in question had to be viewed with reference to the circumstances that the property was in occupation of sitting tenants who could neither be evicted nor whose rents could be increased in view of the rent control legislation in force, that the tenants had to be paid money for the improvements made and for leaving the premises after litigation, that there was renewal clause in the lease deed governing the land, that only a short time was left for the lease to.....orderper shri v. p. elhence, judicial member - these are 13 acquisition appeals under section 269g of the income-tax act, 1961 (the act). they arise out of the order dated 20-4-1983 of acquisition passed by the competent authority under section 269f of the act. since common questions are raised in these appeals, they are, for the sake of convenience, being disposed of by one common order.2. the subject-matter of acquisition consists of the leasehold land with structure and buildings on nazool plot nos. 118a, 118b and 118c, civil lines station, allahabad comprising of bungalow nos. 9 land 11, strachy road and nos. 38 and 40, sardar patel marg, allahadab. the total area is 29,040 sq. yds. out of which 4,224 sq. yds. is the covered area, 17,152 sq. yds. is open land and 7,464 sq. yds, is;.....
Judgment:
ORDER

Per Shri V. P. Elhence, Judicial Member - These are 13 Acquisition Appeals under section 269G of the Income-tax Act, 1961 (the Act). They arise out of the order dated 20-4-1983 of acquisition passed by the competent authority under section 269F of the Act. Since common questions are raised in these appeals, they are, for the sake of convenience, being disposed of by one common order.

2. The subject-matter of acquisition consists of the leasehold land with structure and buildings on Nazool plot Nos. 118A, 118B and 118C, Civil Lines Station, Allahabad comprising of Bungalow Nos. 9 land 11, Strachy Road and Nos. 38 and 40, Sardar Patel Marg, Allahadab. the total area is 29,040 sq. yds. out of which 4,224 sq. yds. is the covered area, 17,152 sq. yds. is open land and 7,464 sq. yds, is; for roads land paths. The transferor is a registered firm, Ram Mohan Dass Tandon (Properties), 33 Dayanand Marg, Allahabad, consisting of three partners, namely, smt. sulochni Devi Tandon and her two sons Sarvshri Badri Vishal Tandon and Girish Tandon (the transferors). The transferee is a co-operative society., the Prayag Upnivesh Evam Avas Nirman Sahkari samiti Ltd. having its registered office at B-77A, Dariyabad, Allahabad (the society). There were two registered agreements dated 11-7-1975 and 15-7-1975 executed by the transferors in favour of the society to sell the property in question for an apparent sale consideration of Rs. 3 lakhs. Thereafter, since the Urban Land (Ceiling and Regulation) Act, 1976 had come on the statute book on 28-1-1976, the permission of the Governor of U.P. under section 20 of that Act was obtained for this transfer on 5-9-1980. Thereafter on 10-10-1980, the sale deed was executed which was registered on 14-10-1980. The said sale deed was executed in pursuance of the agreement to sell and the said permission accorded by the governor of U. P. under section 20. The society transferred the property in question to its members by subdividing into various plots and the sale deeds were executed in their favour. The competent authority initiated the acquisition proceedings in respect of the property in question by issuing notices under section 269D(1) of the 1961 Act to the transferors and the transferee society on 2-6-1981 on the ground that the said property was transferred for an apparent consideration which was less than the fair market value thereof. These notices were published in English in the Gazette of India, dated 4-7-1981. Objections were filed to the proposed acquisition by the society. the competent authority made reference to the valuation unit on 16-11-1981. After considering (i) the reply dated 19-1-1981 of the society to the notice, (ii) the report of the valuation cell (according to which the fair market value of the property in question as on 15-7-1975, the date when the agreement to sell had been executed, was Rs. 6,78,340), (iii) the objections dated 21-1-1982 of the society thereon, (iv) the comments dated 31-3-1982 of the valuation cell, (v) the further reply dated 9-7-1982 of the society, (vi) an advice dated 15-12-1982 of the standing counsel of the department, and (vii) the reply; dated 18-1-1983 regarding the action taken in respect of taxing capital gains, the competent authority agreed with the report of the valuation cell and was of the view that looking to its geographical location in a developing town like Allahabad, the property in question could be put to a very potential use in future. He, therefore, passed the impugned order dated 20-4-1983 under section 269F(6) for the acquisition of the property after obtaining the prior approval of the commissioner.

3. Acquisition proceedings were also initiated by the competent authority, in respect of certain plots transferred by the society to its members, some of which were dropped while the others were still pending when the above acquisition order was passed. The details of the same, so far as ascertainable from the papers filed by the parties are as follows :

Name of the transferee

Property involved

Date of sale deed

Date of issue of notice

Whether acquisition proceedings pending were dropped

1.

Smt. Raj Kumari Dwivedi

Plot No. 22

27-10-1980

3-6-1981

2.

Mrs. Chinm -oyee Mukerjee

Plot No. 23

10-11-1980

3-6-1981

3.

Dr. Gopalji Tandon

Plot No. 18

17-10-1980

3-6-1981

4.

Shri Brij Mohan Lal Mehra

Plot No. 15

7-4-1982

3-6-1981

5.

Smt. Shukla Dutta

Plot No. 16

21-10-1980

3-6-1981

Dropped on 2-6-1982

6.

Shri Virendra Saran

Plot No. 17

21-10-1980

3-6-1981

Dropped on 2-6-1982

7.

Smt chandra Kanti Gupta

Plot No. 13

28-10-1980

3-6-1981

8.

Shri Keshav Sahai

Plot Nos. 3 and 4

30-6-1981

3-6-1981

(Sitting tenant)

9.

Smt. Madhu Sahai

Plot No. 5

30-6-1981

3-6-1981

However, the competeant authority observed in the impugned order that those acquisition; proceedings had been dropped as land was in small fragments to which the provisions of section 269C of the Act were not applicable. In the present proceedings before us, the subject-matter of the challenge is only the main acquisition order dated 20-4-1983. The appellants before us are the three partners of Ram Mohan Das Tandon (Properties) - the transferors, the transferee society and nine members thereof, namely, smt. Raj Kumari Dwivedi, Mrs. Chinmoyee Mukerjee, Dr. Gopalji Tandon, Shri Brij Mohan Lal Mehra, Smt. Shukla Dutta, shri Virendra Saran, Smt. Chandra Kanti Gupta, Shri Keshav Sahai and Smt. Madhu Sahai.

4. Shri S. K. Garg, chartered accountant of the society raised a preliminary objection to the maintainability of the acquisition proceedings on the ground that Chapter XXA of the Act was ultra vires the Constitution of India. He pointed out that two writ petition; in this regard were also pending before the Supreme court - P. Shantha v. IAC [WP No. 4444 of 1981] and M. S. P. Raja v. IAC [WP No. 4330 of 1981], [1981] 131 ITR 161 wherein it was stated that on 17-8-1981 the Supreme Court issued rule nisi on these writ petitions.

5. Next, referring to; the provisions of section 269C relating to the initiation of the acquisition proceedings Shri Garg submitted that the conditions precedent for the exercise of that power by the competent authority were not satisfied and so for this reason to; the acquisition proceedings stood vitiated. In this connection he stressed on the import of the expression reason to believe and fair market value and the object for which the consideration of transfer; could be said to be not; duly stated in the instrument of transfer. For this purpose he referred to the decisions of the Supreme Court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 4347 and Ganga Saran & Sons (P.) Ltd. v. ITO [981] 1. Referring tot the material which,; it was necessary for the competent authority to consider before he could have reason to believe, Shri Garg pointed out the following factors and circumstances :

'(i) that the property was fully rented and in the occupation of sitting tenants and the monthly rent realisation from them was only Rs. 593.75 (details of rent and tenants filed).

(ii) that the land was leasehold, of which the lease had expired on 31-12-1982 (i.e., before the acquisition proceedings were completed) and wherein there was no clause for renewal of lease and so on the date of the agreement to sell only about 8 years lease period remained and on the date of the actual transfer only on an unexpired period of two years was left.

(iii) that the rented property was governed by the Uttar Pradesh Urban Buildings (Regulation of Letting and Eviction) Act, 1972 and on account thereof neither the rents could be increased nor the tenants could be evicted.

(iv) that the fair; market value of such a rented property on the basis of rental method could be only Rs. 53,170 (calculation chart filed). Reference was also made to the decision of the Honble Allahabad High Court in CIT v. Asharfi Lal Gupta : [1983]142ITR765(All) wherein it was held that where the property sough to be acquired is subject to the rent control law, the rental method can be applied for finding out its fair market value in order to determine whether the difference between the fair market value and the apparent consideration exceeds 15 per cent.

(v) that the property was subject to the Urban Land (Ceiling and Regulation) Act and the permission given on 5-9-1980 under section 20 thereof obliged the transferor to transfer the property at a price not exceeding the price of Rs. 3 lakhs stipulated in the agreement to sell.

(vi) that even if the mean of the rental method and the land and building method on valuation were to be taken, the fair market value could not exceed Rs. 3 lakhs.

(vii) that there was no valuation report before the competent authority on the date of the initiation of the acquisition proceedings.

(viii) that the property was heavily encumbered and heavy payments were to be given to the tenants and the residents and that as against Rs. 20,000 taken by the departmental valuer as payable for probable settlement with the tenants to get the building vacated, the total amount of such liability would be Rs. 4,20,896.60 (details supplied).

(ix) that out of the four methods available for the valuation of the building only the minimum value could be taken as held by the Honble Gujarat High Court in the case of Sarabhai M. Chemical (P.) Ltd. v. P. N. Mittal, competent Authority, IAC : [1980]126ITR1(Bom) .

(x) that the available sale instances were not taken by the competent authority into consideration (page 113 of the paper book of the society).

(xi) that the presumption of understatement under section 269C(2) could not be drawn at the initial stage vide the decision of the Honble Gujarat High Court in the case of CIT v. smt. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) .'

Reference was also made by shri Garg to the decision of the Honble High Court in Mohammed Mahbod Ali Saheb v. IAC : [1978]113ITR167(AP) for the proposition that section 269D(2)(a) being a mandatory provision, in violation of the same vitiated the entire acquisition proceedings, He also referred to the decision of the Gujarat High Court in the case of CIT v. Smt. Vimlaben Bhagwandas Patel : [1979]118ITR134(Guj) , at page 171 in regard to the service of notice.

6. On behalf of Smt. Chandra Kanti Gupta, Smt. Sulochni Devi Tandon and Sarvshri Girish Tandon and Badri Vishal Tandon, Shri Garg submitted that there was no material and no reasons which could justify the initiation of the acquisition proceedings. He submitted that the permission under section 20 was in respect of the entire land. He also referred to the decision of the Honble calcutta High court in Tube Mill (India) (p.) Ltd. v. IAC : [1980]122ITR72(Cal) regarding the meaning of the expressionreason to believe and the requirements under section 269C(2). He also pointed out that the complaint said to have been received by the income-tax authorities could only refer to the subsequent conduct of the society and it could not form the basis for the acquisition proceedings. He also eamphasised that a mere reason to suspect could not be sufficient for the initiation of the acquisition proceedings.

7. On behalf of Dr. Gopalji Tandon, Shri Keshav Sahai and Smt. Madhu Sahai, Shri R. K. Gulati, the learned counsel pointed out that the exemption under section 20 had been granted subject to certain conditions. He also pointed; out that it is; only after the government was of the view that the consideration was adequate and in the public interest that such a permission was given and, therefore, it could not be said that the transfer had been made at a lower price or in order to avoid taxation. In this connection reference was made by him to the decision of the Honble calcutta High Court in Rai Bahadur G. V. Swaika Estate (P.) Ltd. v. M. N. Tewari : [1980]126ITR310(Cal) , Competent Authority, IAC v. Smt. Bani Roy Chowdhury : [1981]131ITR578(Cal) and Lalita Jababr v. IAC (Acq.) [1980] Tax LR 900. Refering to another decision; of the Calcutta High Court in CIT v. Smt. Ashima Sinha [1979] 116 ITR 26, he pointed out that the reversionary value of the land could not be added in the case of old house property let out to tenants. Referring to the decidsion of the Calcutta Hilgh Court in the case of Tube Mil (India) (P.) Ltd. (supra) at page 93, he ppointed out that the reproduction of the language of the Act was not a sufficient complaince. Proceeding further Shri Gulati submitted that the subsequent conduct of the society was irreevant. Pointing out that on set of proceedings hasd been drpped, he submitted that if proceedilngs had been; dropped against the members, the question of their being continued against the society could not arise. He submitted taht the powers lunder sections 269C and 269D could not be used as a mere cloak or pretence for making a roving enquiry or for fishing investigation. Reference in this connection was also made by him to the decision of the Calcutta High Court in tube Mill (India) (P.) Ltd. (supra) at page 85. He pointed out that the mere complaint received by the income-tax authorities could not provide any reason to believe unless mind was applied by the competent authority. Referring to the decision of the Supreme copurt in chhugamal Rajpal v. S. P. Chalilha : [1971]79ITR603(SC) , he submitted that the conclusion that there lwas a case for investigating the truth of the allegaed transaction, was not the same things as saying that there were reasons for the issue of the notice. Next, he referred to the decision of the Supreme Court in the case of Sheo Nath Singh v. AAC : [1971]82ITR147(SC) to emphasise that the words reason to believe suggested that the belilef must be that of an hones and reasonable person based upon reasonable grounds. Next, he pointed out that the competent authority had knowledge that the building was in the occupation of tenants and that the society had itself sold the property to the members and, therefore, there could be no acquisition proceedings in respect of the first transaction between the transferors and the society. He referred to the decision of the Honble Allahabad High court in the case of Ram Narain & Bros. v. CIT : [1969]73ITR423(All) for the proposition that the notice should have been addressed to the society and to the partners. He pointed out that in the case of CIT v. Smt. Phoolmati [1983] UPTC 445 the Honble High Court held the noticxe under section 269D(2)(a) was mandatory and that the non-compliance thereof vitiated the entire proceedings. Regarding the valuation, shri Gulati referred to the definition of transfer under section 269A(h) of the 1961 Act, he pointed out that the order of the competent authority neither gave the basis for the acquisition proceedings nor the provisions of section 53A of the Transfer of Property Act, 1882 were lconsidered. He next pointed out that on the date of the notification the property was not available and was no longer in the ownership of the society. referring to the provisions of sectin 281 of the 1961 Act, he pointed out that bona fide transferee for consideration was protected. He further pointed out that even the sanction acorded by the commissioner wsa mechanical and that it was non-spealing rder without application of mind. Refercne was also made by him to Parkes Principles of valuation (page 140). He pointed out that there was no basis before the Valuation Officer for bifurcating the appurtenant land and extra land. In this connection he submitted that it was all appurtenant land. In regard to Shri Keshav Sahai who was a setting tenant, Shri Gulati pointed out that Shri Badri vishgal Tandon had moved an application for eviction; in which there was a compromise as a result of which he could not be evictead [suti No;. 80 of 1972]. He also pointed out tht Shri Keshav Sahai had not been afforded any opportuity to file objections and, therefore, no acquisition proceeding could be initiated against him.

8. Shri J. P. Tandon, the learned counsel for Mrs. Chinmoyee Mukerji Smt. Shukla Dutta and Shri B. M. L. Mehra submitted that his submissions were the same as made by Shri Gulati.

9. Dr. R. R. Misra represented smt. Raj Kumar Dwivedi and Shri Virendra Saran (against when the acquisition procedings has been dropped). Dr. Misra pointed out that the concept of a fair market value had to be seen with reference to the facts and circumstances of each case and that in the present case there were many limitations which restricted the fair market value. In this connection he pointed out that wilthout the permission of the Government under section 20 the property could not be sold land taht the permission could be withdrawn if the transfger was not made according to the conditions mentioned therein. In this connection he pointed out that even the rate at whilch the transfer could be made, had been fixed by the Government. Therefore, he submitted that there was not free or open market. He also emphasised that owning to these restrictions any collsion between the seller and the purchaser was excluded. elaborating on his submision he pointed out that only wsuch examples could be relevant for a case of this nature; where the ransfer ws subject to the permission of the government under section 20. He referred to the decision of the Gujarat Hilgh Court in CIT v. Sumatilal Chhotalla shah : [1980]124ITR862(Guj) for the proposition tht the burden of proof about the fair market lvalue of the properties in the acquisition proceedings is on the revenue. For the same proposition he relied upon another decision of the Gujarat High Court in Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal, competent Authority, IAC : [1980]126ITR1(Bom) and the decisions of the Calcutta High Court in Jai Kumar Kankaria v. competent Authority : [1981]130ITR593(Cal) and Smt. Bani roy Chowdhurs case (supra). He also pointed out that bona fide purchasers for value without notice could not be affected. He also pointed out that there had to be material before the competent authority for forming his opinion and that all the facts had to be considered, namely, the fact that the property was in the occupatin of tenants; that the property was subject to the provisions of the Rent Control Act; the extent of surplus land; the fact that a short time was left for the unexpired lease; that there was no renewal clauses in the lease deed; that the price was fixed by the Government and that the sale had to be in accordance with the conditions subject to whilch permissions had been given under section 20. In this connection he referred to the decision of the Honble calcutta High court in the case of Lalita Jabbar (supra) at pages 395 to 397 and pointed out that since the competent authority ahd no material to form hils belief as required under section 269C(1) and the conditions precedent for the initiation of the proceedings for the acquisition of property were not satisfied, the proceedings were without jurisdiction. Dr. Misra also pointed out that since one set of proceedings had been dropped, the Government couls not indirectly acquire the whole property. In this connection he pointed that the equitable priciple of promissory estoppel was operative. He also pointed out that Shri Virendra Saran had amde constructions on the faith of the permission granted by the Government and on account of the fropping of the acquisition proceedings against him. Reference was made by him in this conncetion to the decision of the Supreme court in Motilal Padampat sugar Mills. Co. Ltd. v. Stte of U.P. : [1979]118ITR326(SC) . He also arguaed that qua the defintion of transfer, the acquisition proceedings when though started well, could not be continued in view of the Finance Act, 1981. He also submitted that no opportunity was afforded to Shri Virendra Saran regarding the acquisition proceedings against the soicety. Next, he pointed out that there was no application of; mind by the commissioner while according his approval and that he had ljuist signed. He also referred to the decision of the Honble Allahabad High Court in the casae of Kishan Lal v. IAC : [1983]142ITR312(All) for the initiation of acquisition proceding was completed only when the Gazette containing the notification became availabel to the publilc and that it was for the department to show that it had taken action in time.

10. Shri K. K. Roy, the learned departmental representative strongly relying upon the acquistion order submitted that before the competent authority the mateiral consisted of a complailnt dated 26-11-1980 and that the notices were issued after taking the due approval of the Comissioner and after application of mind. He submitted that up to the stage when the competent authority issues notice under section 269D(1) the proceedings under Chapter XXA are lof an adminsitrative nature and that it is only after a notice has been issued under section 269D(1) that quasi-judicial lproceedings, if at all, can be said to hane commenced. In this connection he relied upon the obsaervations amde by the Honble Delhi High Court at pages 609 and 613 of its decision in Jawahar Lal v. competent Authority, IAC : [1982]137ITR605(Delhi) . He also submitted that the report of the income-tax inspector was obtained. Referring to the decision of the Honble Allahabaad High Court in Bharitya Udyog v. Competent Authority IAC : [1979]120ITR128(All) he submitted that the proceedings were based not only on the report of the Valuation Officer he aslo submitted that the potentiality of the and can be taken into consideration where a land was already a building site with buildings standing on it. Next, he referred for the same purpose to the decision of the Honble Allahabad High Court in the case of CIT v. Asharft Lal Gupta : [1983]142ITR765(All) . He referred; to the decision of the Honble Delhi High court in the case of Mahavir Metral Waorks (p.) Ltd. v. Union of India : [1974]95ITR197(Delhi) for the proposition that for the purposes of Chapter XXA a transfer is registered. Regarding the service of the notices he pointed out that service had been made in Smt. Sulochni Devi and Sarvshri Girsihs Tandon and Badri Vishal Tandon by registered post and that the letter dated 8-7-1981 of shri Girish Tandon specifically referred to the notice. Shri Roy pointed out that no notices were given to the occupants as there was not information about them. In any case he argued that even if notice them was necessary, the initiation of the penalty proceedings could not be challenged and that at best the aacquistion order could be set aside to be made again after issue of due notices. In this connection reliance was placed by him on the decision of the Honble gujart High Court in the case of smt. vimlaben Bhagwandas Patel (supra). He pointed out that there was definitely an avoidance of tax in the transfer, though the society was not liable to wealth-tax. So far as the question of valuation is concerned, refernce was made by him to the following decisions - C. Krishan Prasad v. CWT : [1970]76ITR115(KAR) , Pandit; Lakshmi Kant Jha v. CWT : [1973]90ITR97(SC) , Prodyut; Kumar Dutta v. Competent Authority, IAC : [1982]134ITR42(Cal) P. S. Gandhi v. CWT : [1983]141ITR105(All) and Asharfi Lal Guptas case (supra).

With reference to the decision of the Supreme Court in Ahmed G. H. Ariff v. CWT : [1970]76ITR471(SC) , he submittaed that property is a term of the idest import and that it signifies egery possible interest which a person clearly hold and enjoy. He also pointed out that the rate appled by the Valuation Officer was based upon the letter dated 6-4-1981 of the corporation. Next, he submitted that the rate of development; cahrges had to relate to the date of execution of agreement to sell land not to the date of the sale. lsumming up his arguments Shri K. K. Roy submitted that notwithstanding the permission given by the Government under section 20 an open market had to be presumed in terms of the decision of the Supreme Court in the case of Pandit Laxmi Kant Jha (supra). He, therefore, argued that the acquisition order was quite valid.

11. We have carefully considered the rival submissions and have also gone through the various decisions referred to on both the sides. So far as the preliminary objection taken by Shri Garg is concerned, we can only say that as a creature of the Act, this Tribunal cannot go into the question of he constitutional validity of Chapter XX-A and that if the Honble Supreme Court were to uphold the constitutional challenge in the two writ petitions pending before it the appellants will undoubtedly be able to take; advantage; of such a decision of the Supreme court itself in Kanpur Vanaspati Stores v. CST [1973] 32 STC 655 and K. S. Venkataraman & Co. (P.) Ltd. v. State of Madras : [1966]60ITR112(SC) .

12. however, as wae shall presently see, the acquisiton order passed by the competent authority can be successfully assailed on two; grounds, namely, on the ground of the validity of the initiation of the acquisition proceedings and on the ground of valuation. We shall, therefore, only deal with those grounds, the other grounds having been rendered thereby as unnecessary and academic.

13. Section 269C(1) provides that the proceedings for the acquisition of property under Chapter XX-A can be initiated by the competent authority if he has reason to beleive that any immovable property of a fair market value exceeding Rs. 25,000 has been transferred for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer; as agreed to between the parties has not been truly stated in the instrucment of transfer with the object of (a) facilitating the reduction or evasion of the liability of the transferor to pay tax under the Act in respect of any income arising from the transfer; or (b) facilitatinjg the ocncealment of any income or any monies or other lassets which have not been or which ought to be disclosed by the transferee for the puposes of the 1961 Act or the Wealth-tax Act, 1957. As pointe out by the Honble Calcuttal High Court in the case of Lalita Jabbar (supra), the satisfaction of the competent authority for the pruposes of initiation of the acquisition proceedings has to be based on relevant materials and that if it is not so, the initiation of the proceedings would be without jurisdiction. No doubt, as held buy the Honble Gujarat High Court in the case of Smt. Vimlaben Bhagwan Das Patel (supra), the satisfaction of the competent authority is a subjective satisfaction of the objective facts referred to in section 269C(1) but the reasons for the formation of the belief have to have a rational and direct conncetion with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review. If the competent authority only has a vague felling that the sale transaction may be bogus or that there was a case for investigation the truth of the alleged transaction it would not be sufficient for justifiying the issue of notice. The words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that though the competent authority may act on direct or circumstantial material but not on mere gossip or rumour. The competent authority would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by section 269C(1). The Tribunal can always examine this aspect though the declaration of sufficiency of the reasons for the belief cannot be investigated by it. Further, there must be a direct nexus or live link between the material coming to the notice of the competent authority and the formation of his belief. It is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant the formation of the belief. As held by the Honble supreme Court in the casae of Lakhmani Mewal Das (supra) the reason for the formation of the belief must be held in good faith and cannot be a mere pretence. No doubt, the approval of the commissioner under section 269F is not to be granted mechanically and the commissioner has to apply his mind to all the relevant facts and circumstances as were before the competent authrity from the materials and evidence gathered by him. In this connection the observations of the Honble Gujarat High court in the cse of Smt. Vimlaben Bhagwan Das Patel (supra) at Page 139 are relevant. In the present case a copy of the reasons recorded by the IAC on 2-6-1981 awere placed on the record on behalf of the revenue. The relevant portion thereof is extracted below :

'2-6-1981 On the basis of details given by the transferee, the F. M. V. of the property as per Inspectors report dated 25-4-1981 is Rs. ............ The F. M. V. exceeds the apparent consideration by more than 15 per cent thereof. I have reason to believe that the consideration for the transfer of the propertyagreed between the parties hasa not been truly stated in the instrument of transfer with the object of recuction or evasion of tax liability of the transferor under the IT Act or facilitating concealment of income or assets of the transferee.

This is a fit case for initiating proceedings under saection 269C. Issue notice under section 269D(1).

Dated

Sd/-

2-6-1981

Inspecting Assisstant commissioner of Income-tax Acquisition Range, Lucknow 25-4-1981'

A perusal thereof shows that reference is made therein to the fair market value of the property as per the Inspectors report dated 25-4-1981 out neither the copy of the Inspectors report was placed on the record for our perusal nor it detailed as to what was the amount of the fair market value. In the reasonsa recorded there is a blank and the fair market value is not specified. The learned departmental representatives was fair enough t state before us that even in the original reasons recorded this blank was not filled. It, therefore, becomes claear that without the exact amount of the fair market vlaue being before it, the competent authority could not have had reason to believe that the consideration for the transfer of the property agreed to between the parties had not been truly stated in the instrument of transfer. Let us now have a look at the materials whcih were before the competent authority for the formation of the belief that the consideration for the transfer had not been truly stated in the instrumetn of transfer. It is not under dispute that the property in question was fully tenanted and in the occupation of the sitting tenants. In reply to a query from the Bench the learned departmental representative stated that the names of the tenants were; there in the complaint. In para 4 of the sale deed also they are given. Thus, the statement of the competent authority to the contrary is not correct. Theri tenancies were subject to Rent Control Act and neither the rents could be increased not the tenants could be evicted. again the lease expired on; 31-12-1982 and on 2-6-1981. Only one and a half years lease period remained. It is also admitted that there was no clause in the lease deed for renewal. The competent; authority was also aware that there were in exiwstence two registered agreements dated 11-7-1975 and 15-7-1975 to sell the property in question for Rs. 3 lakhs. After the execution of these agreements tthe Urban Land (Ceiling and Regulation) Act had come on the statute book, section 20 of which required the prior permission of the Government before the transfer could be effeacted. A perusal of the said permission shows that it was given in respect of the entire land and subject to the conditions mentioned therein and notably subject to the condition that the sale was not to be made at an amount exceedint that mention therein and notably subject to the condition that the sale was not tobe made at an amount exceeding that mentioned in the agreement to sell. Again, it is pertinent to notice that at the time of recording of the reasons, namely, on 2-6-1981 there was no valution report before the competent authority becuase the reference to the valutation cell was itself made on 16-6-1981. Therefore, in terms of the decision of the Honble Calcutta High court in the case of G. V. Swaika Estate (P.) Ltd. (supra) there were no materials before the competent authority for the formation of the belief that the consideration for the disputed transfer had not been truly stated in the instrument of transfer. To the same effect were the observations of the Honble Calcutta High Court in the case of Tube Mill (India) (P.) Ltd. (supra) and, therefore, we are clearly of the view that the initiation of the proceedings was bad, unauthorised, without jurisdiction and, therefore, void ab initio.

14. So far as the question of valuation iws concerned, it is by now well settled by a number of pronouncements that in the case; of builigings which are in the possession of the tenants and the tenants cannot either be evicted or the rent payable by them enhanced, the only proper method of valuation would be to capitalise the annual rent by a certain number of years purchase. It is equally well settled that even if the valuation of a property is capable from four dilfferent method, the method which leads to the least valuation will have be taken for the present purposes. Again, as rightly pointed out on behalf of the appellants, even if the mean of the two methods, i.e., rent yield method and land and buildings method is taken, the question of valuation would be concluded in the present case in favour of the assessee. Here it also needs to be mentioned that the concept of an open market (which is a notional concept) postulates that there should be a willilng purchaser and a willing seller in respect of the property with all its incidents. There is a lot of force in the submissions raised by Dr. Mishra that in the present case the market was only as open s the conditions and the circumstances attendant on the property in question allowed it to be. In other words, the market for the sale of the property in question had to be viewed with reference to the circumstances that the property was in occupation of sitting tenants who could neither be evicted nor whose rents could be increased in view of the rent control legislation in force; that the tenants had to be paid money for the improvements made and for leaving the premises after litigation; that there was renewal clauses in the lease deed governing the land; that only a short time was left for the leasse to expire; that the property was subject to permission under the Urban Land (Ceiling and Regulation) Act and in terms of the permission, the sale had to be made at a price not exceedilng that mentioned in the agreements to sell and lastly that in the case of any breach of the conditions of that permission, the permission was liable to be withdrawn. It also needs to be emphasised that as held by the Honble Calcutta High Court in the case of Smt. Ashima Sinha (supra) whena property is valued on a rental basis, the result is the value of the lands and builings taken together and that the value of the land cannot be added again by the addilng the reversionary value of the land becausethe building is very old. In the very decisin of the Honble Allahabad High Court in Bhartiya Udyogs case (supra) relied upon on behalf of the revenue, it was clearly held that the development method, even if permissible, will not be permissible at all in respect of a site which is already being used for building purposes. further, in the case of Asharfi Lal Gupta (supra) it was clearly held by the Honble High Court that where the value; has been found out on the basis of rent accuread from the property the condition of the building becomes irrelevant. One set of acquisition proceedints had also been dropped by the competent authority on 2-6-1982 where the apparent consideration of the sale deeds was simialr and this is also a relevant factor. In the light of the above, the question of valuation of the property in question may now be examined. The four bungalows are occupied by the following tenants ar rents noted against each :

Sl. No.

Name of tenant

Rent per month

Rs.

1.

Mr. Justice K. N. Seth

110.00

2.

Shri Daya Prakash Mittal (Half Residence)

55.00

3.

Shri Kailash Chandra Mittal (Half Residence)

55.00

4.

Shri Satya Pal Prabhakar

88.75

5.

Shri Keshav Sahai, Advocate

95.00

6.

19 out-house in occupation of difference persons

190.00

593.75

The valuation was made by the valuation cell by land and buildings method by taking the land rate at Rs. 45 per sq. yd. for the appurtenant land (built up area together with the land required for the convenient enjoyment of the building) and at the rate of Rs. 40 per sq. yd. for the balance land in the following manner :

Rs.

Rs.

1.

Appurtenant land (built up area plus the land attached) measuring 4,424 sq. yds.x 45

1,99,080

2.

Surplus land 29,040 -4,424 -7, 464 (for rates), i.e., 17,152 sq. yds. 40

6,86,080

8,85,180

Less : Reduction on account of reversionary value of appurtenant land with building.

67,000

Revenue charges of lease

2,58,912

3,25,912

5,59,248

As aginst this, the valuation according to the appellants is as follows

Rs.

Rs.

1.

Gross maintainable rent (as detailed above)

593.75 per month

7,125.00 per annum

2.

Outgoing to be decuted :

(i) Municipal taxes

724.81

(ii) Annual maintenance and repairs at one-sixth of the annual rent

1,066.70

(iii) Ground rent

164.20

(iv) Collection and management charges at 6 per cent of the rental

384.00

2,339.71

3.

Net annual rent income

4,785.29

4.

Capitalised value lof the net annual rental income by adopting a multiplier of 100/9

53,170.00

The value of the main residential bungalows with Khaprail type roof up to five metres height was taken by the Valuation Officer at Rs. 2,60,354 and the in shed structures were valued at Rs. 65,148. The depreciated value of these two items was taken the expenses relating to the litigation/probable settlement with the tenants to get the house evicted at Rs. 20,000. As against this, the details of the actual expenditure already incurred on litigation/settlement according to the appellants is as follows :

Rs.

1.

Depreciated cost of four bungalows not charged from the tenants of the bungalows as per Valuation Officers report

1,25,819.00

2.

Further rebate allowed to the five occupants of the bungalows for the improvement effected by them in the residences :

(i) Shri Keshav Sahai

10,000.00

(ii) Shri Satya Pal Prabhakar Rs.

28,273.75

(iii) Mr. Justice K. N. Seth :

(a) Improvement rebate

24,109.00

(b) cost of boundary wall made by the vendees

30,943.73

(c) Garage and servant quarters made by the vendees

18,620.37

73,673.10

(iv) Daya Prakash Mittal and shri Kailash Chandra Mittal

35,130.75

2,72,896.60

3.

Payments to be made to 19 tenants of the outhouses

1,50,000.00

Grand Total

4,22,896.60

The details of the development expenses which as per the society, it would have to incur (as detailed in the impugned acquisition order) is Rs. 11,49,660.84. The appellants ahve given the authority for such expenses. If to this an amount of Rs. 1,50,000 payable to the 19 tenants is also taken into consideration, it would total up to Rs. 15,99,660.84. Therefore, it is clear that the competent authority could not have merely considered the question of the acquisition of the property under Chapter XX-A on the basis of the apparent consideration of Rs. 3 lakhs. The real sale consideration; would have to include the apparent srale consideration as well as the amount which the society would have to pay to the tenants of the out-houses and to the other tenants as and by wasy of development charges. The appellants have duly supported their contentions with documents regarding development charges, rents, improvements, etc. The appellants calcualtion of the amount of Rs. 1,50,000 at the rate of rs. 9,000 per tenant for 12 tenants and at the rate of Rs. 6,000 per tenant for seven tenants does not all appears to be excessive. In the case of CIT v. Ganesh Builders : [1979]116ITR911(Bom) , the Honble Bombay High Court had duly upheld that incidental expenses like stamp duty, brokerage and laegal expenses may form part of the mental process of the buyers for the purposes of making an offer. The result of the above discussion is that if the valuation as made by the appellants on the basis of rental method is taken, it would come to only Rs. 53,170 as compared to which the apparent sale consideration of Rs. 3 lakhs was much more. If the valuation; as amde by the Valuation Officer is corrected to take into consideration the rebate allowed by five occupants of the bungalows and the payments to be made; to the 19 tenants, the figures of Rs. 20,000 deducted by the Valuation Officer would need to be substituted by Rs. 2,97,007,60 (Rs. 10,000 + Rs. 28,273.75 + Rs. 73,673.10 +Rs. 35,130.75 +Rs. 1,50,00). this means that the fair market value taken by the competent authority at Rs. 6,78,340 will get reduced to Rs. 4,01,262.40 (Rs. 6,78,340 - Rs. 2,97,0770.60 + Rs. 20,000). It has to be further reduced by Rs. 67,000 being the reversionary value taken into consideration by the valuer. If this is also deducted, the value would be further reduced to Rs. 3,34,260.40 which does not exceaed by more than 15 per cent of the apparent consideration of Rs. 3 lakhs. Thus, evne if the other points including development charges (whatever be the date with reference to which such development charges were to be reckoned) were not looked into, even according to the valuation report of the departmental to exceed more than 15 per cent of the apparent consideration. Thus, in Whatever way the matter is looked at, the order of acquisiton could not be made in terms of section 269F(6). The acquisition order has, therefore, to be quashed. Having regard to the above, we are, therefore, claearly of the view that the impugned acquisition order is unsupportable and ahs to be quashed.

15. The appeals are allowed and the acquisition order dataed 20-4-1983 made by the competent authority is hereby quashed.


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